How are client’s assets and cash deposits protected?

Banking & Finance (2nd edition)

Austria Small Flag Austria

The Act on Deposit Guarantee Schemes and Investor Compensation (“ESAEG”) implements the Directive on Deposit Guarantee Schemes (Directive 2014/49/EU) and regulates the protection of deposits and credit balances including interest on accounts and savings.

Cyprus Small Flag Cyprus

The Law on Deposit Guarantee and Resolution of Credit Institutions and Other Institutions Scheme of 2016, modelled after the relevant EU Regulation, is meant to provide limited protection (up to €100,000 , the so-called “Deposit Guarantee”) of a bank client’s cash deposits . Thus, according to the Law an ACI may accept deposits provided that it participates in the Deposit Guarantee Scheme.

The following deposits are covered up to fifty thousand Euros (€50.000), in addition to the aforementioned amount: (a) deposits from immovable property transactions that concern private residence, (b) deposits that serve social purposes.

Finland Small Flag Finland

Deposits at deposit banks are protected by the deposit guarantee scheme of EU Directive 2014/49 as implemented by Finnish Act on the Financial Stability Authority (1195/2014). Client deposits are awarded a maximum deposit protection of EUR 100,000 at the relevant credit institution. Exceptions to the maximum deposit protection apply with respect to proceeds from real estate transactions relating to private residential properties.

The deposit protection scheme is guaranteed by the Deposit Guarantee Fund, which is financed by deposit guarantee contributions raised from credit institutions. The individual contributions are determined on the basis of the amount of each credit institution’s covered deposits and risk level. The target level of the Deposit Guarantee Fund to be achieved by July 2024 is an amount equivalent to 0.8% of the total amount of covered deposits. If the assets of the Deposit Guarantee Fund are insufficient for the payment of compensation, the Financial Stability Authority may obligate deposit banks to pay an additional annual contribution or lend assets to the Deposit Guarantee Fund.

France Small Flag France

First, in order to ensure the effective application of the resolution tools, resolution funds have been set up which are financed by contributions from the institutions.
In addition, in the event of a straightforward liquidation, the Deposit Guarantee and Resolution Fund (FGDR) is used to reimburse depositors, holders of securities and beneficiaries of guarantees.

In the event of a resolution, the deposit guarantee scheme, which subrogates to the rights of covered depositors, is not required to make a contribution greater than the amount of losses it would have had to bear if the institution had been wound up under normal insolvency proceedings, or greater than 0.4% of the total amount of covered deposits held by its members.

In the event of a liquidation, the deposit guarantee scheme is used for the following purposes:

- to reimburse depositors up to a maximum of EUR 100,000 per person and per establish-ment, within seven business days;
- to compensate investors up to a maximum of EUR 70,000 per person and per establishment in respect of any securities (shares, bonds, shares in UCITS) or other financial instruments that cannot be returned to them;
- to act in place of the bank if the latter is no longer able to honour the sureties or guarantees it has provided.

In France, the role of the deposit guarantee scheme is carried out by the Deposit Guarantee and Resolu-tion Fund (FGDR).

Regarding the protection of clients assets, the bank acting as custody account-keeper must exercise due care in the safekeeping and accurate recording of securities. In particular, when it holds securities for its customers, it must keep the securities held on own account strictly separate from those kept for its customers. To this end, it must have at least two accounts open for each security with the central securi-ties depository. This is called the account segregation rule.

The financial intermediary may never use its customers’ securities without their express prior consent. This rule is intended to ensure that customers’ securities may be promptly transferred to a healthy finan-cial intermediary in the event that the original intermediary fails.

In the event of the failure of a custody account-keeper that fraudulently used its customers’ securities without their agreement, a guarantee mechanism compensate investors if they cannot obtain their securi-ties in the limit of €70,000 per investor.

Turkey Small Flag Turkey

According to the Banking Law, (i) savings deposits and (ii) participation funds owned by real persons deposited with deposit and participation banks shall be insured by the SDIF. As such, pursuant to the Regulation on Deposits and Participation Funds Subject to Insurance and Premiums to be Collected by the Savings Deposit Insurance Fund, for each real person, an amount up to TL 100,000 held in the savings deposit and participation accounts shall be insured, whether in TL, foreign currency or precious metal, provided that such accounts are (i) opened in the name of a real person, (ii) maintained with a Turkish branch of the credit institution operating in Turkey and (iii) not subject to any commercial transactions other than cheque issuance. The SDIF shall pay the parts of deposits and participation funds subject to insurance and maintained with banks of which operation licenses are revoked, from its own resources, to the extent that such accounts are authenticated without raising any doubt.

Certain excessive interest/profit share amounts (compared to the average interest/profit share amounts) in such accounts shall not be subject to the insurance; regardless of the above-mentioned limits. Additionally, certain deposits, participation funds and other accounts (i.e. accounts (i) owned by the respective credit institution’s controlling shareholders and top-level management, (ii) which comprise of proceeds of crime; and (iii) maintained with credit institutions incorporated in Turkey only to conduct offshore banking activities) shall be excluded from the insurance coverage.

Furthermore, as per Article 82 of the Capital Market Law, if it is determined that an investment institution (a) is unable to fulfil its (i) cash payment or (ii) capital market instruments delivery obligations arising from its capital markets activities or (b) will not be able to fulfil the same within a short period of time, the CMB shall decide to compensate investors upon the BRSA’s opinion to that regard as a pre-requisite. Investors shall apply to the Investor Compensation Center with the documents evidencing their right of ownership over the cash and capital market instruments held by the respective investment institution as Article 84 of the Capital Markets Law and the maximum compensation amount to be paid to each investor shall be TL 177,681.

Switzerland Small Flag Switzerland

Depositor protection in Switzerland is based on a three-tiered system:

  1. As a first step, privileged deposits (up to CHF 100,000 per customer) are immediately paid out from the liquid assets of the failed bank.
  2. If the institution’s liquidity does not suffice to cover all the privileged bank deposits as per step one above, the system-wide self-regulatory depositor protection scheme is used as a second measure to protect privileged deposits, provided that such privileged deposits are booked in Switzerland.
  3. And as a third measure to protect deposits, privileged deposits are treated preferentially, i.e., in the event of bankruptcy, these deposits are treated as second creditor class claims and will thus be satisfied after certain claims in the first class (e.g., claims of employees) but before general creditors in the third class. Claims with respect to deposits exceeding the privileged amount are ranked in the third class of creditors and participate pro rata in the proceeds of realisation of the bank`s assets to any other unprivileged creditors.

Unlike cash deposits in bank accounts, assets in custody accounts such as shares, units in collective investment schemes and other securities are client property and, in the event of bankruptcy, all such assets are immediately separated from the bank`s assets and then released to clients owning such as-sets or to a custodian designated by them.

Slovakia Small Flag Slovakia

Clients deposit protection is secured in the Slovak Republic through the Deposit Protection Fund, which concentrates monetary contributions from banks and branches of foreign banks to provide compensa-tion for unavailable deposits deposited in bank and branches of foreign banks. The Fund also performs the cash-managements activities of the National Crisis Management Fund.

Clients deposits deposited in banks are protected by the Deposit Protection Act up to EUR 100,000.

The branch of a foreign bank is not obliged to participate in deposit protection under Slovak legislation if deposits deposited in it are protected in the state where the founding foreign bank has its registered office at least under extent of Slovak legislation and provided that mutuality is guaranteed. This rule does not apply to branches of foreign banks benefiting from one bank license under European Union law.

Banks are required to contribute to the Fund an entry contribution of EUR 35,000 and annual contribution at least 0.01% of the amount of covered deposits in the relevant bank, taking into consideration the risk profile of the bank and under certain circumstances extraordinary contribution.

Germany Small Flag Germany

Germany has implemented the European Deposit Protection Directive (2014/49/EU), and consequently a statutory protection of deposits up to an amount of EUR 100,000 applies. In addition, separate voluntary deposit protection schemes exist among private banks, savings banks and cooperative banks, respectively. For example, the voluntary protection scheme of the private banks (Einlagensicherungsfonds) is designed to protect all deposits of private individuals with a specific bank up to an amount of 20% of the equity (haftendes Eigenkapital) of a bank which equals at least EUR 1 million per customer. Different protection levels for professional market participants and public entities apply.

Israel Small Flag Israel

In general, there is no specific legislation in Israel that regulates the status of clients' assets in the event of an insolvency exist.

In addition to the BoI authority to guarantee certain deposits or liabilities as mentioned under question 22 below, we note that in recent years the BoI is considering the advantages and disadvantages of a deposit insurance mechanism and the need and possibility of implementing it in Israel.

As for securities held by clients, there are certain laws and directives, including the rules and bylaws of Tel Aviv Stock Exchange (TASE) and of the Tel Aviv Stock Exchange Clearing House, which mainly address the issue of custody services which guarantee certain separation between assets of the clients and assets of the bank.

Since under the Bylaws a TASE member viewed as holding securities for its client in trust, then under the concept of Israeli Trust Laws, it seems that those securities are not considered as part of the assets of the TASE member i.e. the bank.

In addition, as part of a recent amendment to the Securities law, several rules applying to a TASE members were added, aiming to increase the stability of clearing houses and therefore, to protect clients' assets.

Singapore Small Flag Singapore

The underlying theme behind MAS’s regulation and supervision of banks has always been to protect the interests of depositors.

This is achieved through a legal framework for prudential supervision that is established through a mix of legislative provisions (set out in Parts IV, V and VI of the BA), as well as regulations made pursuant to section 78 of the BA, and legally binding notices issued by MAS pursuant to various authorising provisions in the BA.

Japan Small Flag Japan

Japanese banks mandatorily participate in the deposit insurance system operated by DICJ pursuant to the Deposit Insurance Act, under which the maximum amount of protection is 10 million yen per customer of one bank. This maximum does not apply to non-interest-bearing deposits repayable on demand and mainly used for payment purposes, which are protected without any maximum. Note that deposits not denominated in Japanese yen, negotiable certificates of deposit, and deposits with foreign banks’ branches in Japan are not protected under the deposit insurance system.

Oman Small Flag Oman

Under the Banking Law and CBO regulations, Omani banks are required to take certain measures that protect a client’s deposits. The CBO may from time to time require deposit-taking banks to keep re-serves at set ratios, limits and sizes relative to their deposits.

Oman has also established a bank deposit insurance scheme (the “BDIS”). It is mandatory for all banks receiving deposits to be members of the BDIS. Deposits are eligible for compensation if they are sav-ings deposits, current accounts, call deposits, time deposits, government deposits, trust and pension funds deposits and other deposits specified by the CBO. The current ceiling of reimbursement under the BDIS is OMR 20,000.

Georgia Small Flag Georgia

Under the Law of Georgia on Deposit Insurance System, in case of insurance event, each individual depositor is entitled to receive compensation from the Deposit Insurance Agency, up to the maximum insured amount of 5,000 GEL, regardless of the number of deposit accounts kept in each individual bank operating in the territory of Georgia. According to the law, the insurance event shall be the commencement of liquidation, insolvency or bankruptcy procedures against the commercial bank in accordance with the Law of Georgia on the Activities of Commercial Banks.

Liechtenstein Small Flag Liechtenstein

Banks and investment firms are obliged to join a self-regulation body or participate in a foreign protection scheme for the purpose of deposit protection. The self-regulation body is subject to approval by the FMA. The majority of regulated intermediaries in Liechtenstein has joined the Deposit Guarantee and Investor Compensation Foundation SV (Einlagensicherungs- und Anlegerentschädigungsstiftung, EAS)

Luxembourg Small Flag Luxembourg

Apart from the resolution-related provisions of the BRRD (referred to in the answer to Question 22. above), the Resolution and Deposit Guarantee Law implements directive 2014/49/EU of the EU Parlia-ment and the Council of 16 April 2014 on deposit guarantee schemes, requiring all deposit-taking banks in the EU to be a member of a national deposit guarantee system.

The Resolution and Deposit Guarantee Law provides for the Fonds de Garantie des Dépôts Luxembourg (the "FGDL") is a public institution that collects contributions (ex-ante) due from credit institutions, man-ages the collected assets and compensates depositors in case of bank failure (Art. 162(2) of the Resolu-tion and Deposit Guarantee Law).

FGDL is financed, fully and exclusively, by its member institutions via contributions (held with the BCL). The coverage level is up to EUR 100,000 in aggregate for all deposits of each depositor per credit insti-tution. The coverage level is enhanced up to EUR 2,500,000 in aggregate for all deposits ("temporary high credit balances") resulting from certain life events (such as real estate transactions) of each deposi-tor per credit institution during 12 months as from the date on which the deposits were held with the member institution.

As far as the financial instruments are concerned (e.g. securities accounts), these are covered by the Système d’indemnisation des investisseurs Luxembourg (the "SIIL"). Customers holding financial instru-ments have a right of restitution in the event of failure of the custodian institution (credit institution or investment firm), if some of these financial instruments are found to have vanished due to e.g. fraud or administrative negligence, up to EUR 20,000 per person and per institution.

Portugal Small Flag Portugal

Cash deposits are protected by the Deposit Guarantee Fund, and it guarantees the repayment of the overall value of the cash credit balances of each deposit holder, up to a limit of EUR 100,000.00 per credit institution.

With regard to financial instruments, the investor’s assets are protected by the Investor Compensation Scheme that guarantees the repayment of the credits linked to investment operations, up to a limit of EUR 25,000.00.

Malta Small Flag Malta

Client’s assets are subject to the Investor Compensation Scheme Regulations (S.L. 370.09). Generally speaking, the Investor Compensation Scheme is triggered when an institution stops trading or becomes insolvent, and covers 90% of an institution’s net liability to an investor in respect of investments which qualify for compensation, subject to a maximum payment to any one person of €20,000.

Cash deposits are subject to the Depositor Compensation Scheme Regulations (S.L. 371.09). If a deposit is unavailable because a credit institution is unable to meet its financial obligations, depositors are repaid by the Depositor Compensation Scheme, in accordance with these Regulations. This repayment covers a maximum of €100,000 for the aggregate deposits of each depositor, provided that a higher compensation of up to €500,000 may be payable in the case of a temporary high balance.

Qatar Small Flag Qatar

Part 6 (Articles 140 – 159) of the QCB Law governs the protection of the clients of financial institutions.

For instance, Article 144 of the QCB Law provides that, as the supreme authority on supervision and control of services, business and financial activities in the State, the Bank shall set the rules and regulations necessary to protect customers of financial institutions according to international best practices. In particular, the Bank may:

1. Supervise and control the provision of financial services to the public, develop them and improve their delivery.
2. Lay the foundations and control standards necessary to protect customers from fraud, exploitation and discrimination and to ensure the quality of financial services.
3. Receive and consider customer complaints, take appropriate action, or refer them to the competent authorities.
4. Develop and organize appropriate mechanisms for settling disputes between financial institutions and their customers, including conciliation, mediation and arbitration.
5. Take appropriate action to deal with uncompetitive practices harmful to the interests of customers.
6. Take appropriate action against financial institutions subject to the supervision and control of the Bank to ensure their commitment and compliance with the provisions of this law and its implementing regulations, resolutions and instructions and all relevant legislation in force.

Furthermore, Article 145 of the QCB Law provides that all client accounts, deposits, trusts and safety deposits in banks and all transactions related to them, shall be confidential, and may not be accessed or disclosed and nor may any information or data about it be given to any person either directly or indirectly, except by written permission from the client, his heirs or legatees, or based on an enforceable court ruling in a current legal dispute.

Romania Small Flag Romania

The Bank Deposit Guarantee Fund (“BDGF”) was established by the law transposing in the relevant part the provisions of EU Directive 2014/49 EC. Before the signing of any contract, credit institutions shall inform depositors that their debts to the credit institution will be considered when the compensation is calculated. Legal entities and individuals’ deposits with a credit institution contributing to the BDGF are guaranteed through BDGF up to an amount of the RON equivalent of EUR 100,000 per depositor per financial institution.

The Investors Compensation Fund (“ICF”) is guarantee scheme to investors on the capital market. As such, the ICF collects contributions from intermediaries authorized to provide investment services and management companies, managing individual investment portfolios with the intention to pay out compensation to the investors when a member fails to return the money and/or the financial instruments owed by or belonging to investors. The ICF compensates the investors (professional and institutional investors are excluded) up to a limit of the RON equivalent of EUR 20,000 per investor.

Serbia Small Flag Serbia

Assets and deposits of clients are protected by mandatory insurance of deposits of natural persons, entrepreneurs, micro, small and medium companies with banks, up to EUR 50,000 per deponent, in case of bankruptcy or bank liquidation.

United Kingdom Small Flag United Kingdom

The UK offers protection of deposits up to £85,000 per person per firm, administered by the Financial Services Compensation Scheme (FSCS). This body is responsible for ensuring that compensation is paid to insured depositors and other eligible claimants to cover amounts due from failed banks and in other appropriate cases. The FSCS is independent from, but accountable to, both the FCA and the PRA.

The FCA also has extensive rules on client asset protection which apply to firms holding client assets. These rules require client assets to be segregated and reconciled within set time periods.

United States Small Flag United States

Deposits maintained with US branches of insured depository institutions are insured by the FDIC up to the maximum deposit insurance amount, which is $250,000 per depositor, per FDIC-insured institution, per ownership category. In addition, deposits are treated as a preferred unsecured claim senior to general claims of creditors.

Except for funds that have been self-deposited, which are deposits treated as described in the previous paragraph, financial assets held with a bank as trustee or custodian in safekeeping are not subject to claims of the bank’s creditors.

Italy Small Flag Italy

Italy has implemented the European Deposit Protection Directive (2014/49/EU) through Legislative Decree no. 30 of 15 February 2016. As a consequence, Italian banks have to adhere to one of the systems of protection of depositors constituted and recognized in Italy. It is provided for, inter alia, a statutory protection of deposits up to an amount of Eur 100,000.00.

Moreover, in case of compulsory administrative liquidation (liquidazione coatta amministrativa) of the bank, client’s assets and cash deposits are protected by several provisions aimed to realize the segregation of the assets of the bank (segregazione patrimoniale), so that from the date of installation of the winding-up bodies, inter alia: (i) the payments of liabilities and the restitutions of third-parties assets are suspended; (ii) the bank loose the management and the availability of the assets; (iii) all the actions and payments made by the bank are ineffective towards creditors.

Thailand Small Flag Thailand

Under the Deposit Protection Agent Act of Thailand (“DPA Act”) in which the deposits of the customers are protected from the closure of a financial institution under the terms and conditions therein provided. Currently, all deposits with the Financial Institutions (all commercial banks, finance companies and credit foncier companies) of a customer are protected up to Baht 10 million (for the period of 11 August 2018 – 10 August 2019), Baht 5 million (for the period of 11 August 2019 – 10 August 2020) and Baht 1 million (for the period after 10 August 2020).

Without prejudice to the DPA Act, the FIB Act also provides that, after the BoT has given the notice of the order of control to a financial institution, the directors, officers and employees of the financial institution shall be prohibited from continuing the conduct of business of that financial institution, unless otherwise authorized by the financial institution control committee (as appointed by BoT under the FIB Act) (“Committee”).

The Committee shall be empowered to appoint one or more financial institution control officers to do any act. The Committee shall have the powers and duties to carry on the business in all respects of the financial institution placed under control. The chairman of the Committee shall be the representative of such financial institution.

The directors, officers and employees of the controlled financial institution shall, for example, (1) manage in order to protect and maintain assets and benefits of the financial institution; (2) report the business and surrender assets together with information, accounts, documents, etc. related to the business and assets of the financial institution to the Committee without delay. A person possessing properties or documents of the financial institution shall notify the Committee of his possession without delay.

Slovenia Small Flag Slovenia

By adopting the Deposit Guarantee Scheme Act (which transposed the Directive 2014/49/EU), Slovenia established a deposit guarantee scheme, operated by the Bank of Slovenia. If the due and payable deposit is declared unavailable, the repayment bank (chosen by Bank of Slovenia) must repay to the depositor a deposit covered by the guarantee up to EUR 100,000. Guaranteed deposits shall be repaid within seven working days. Some client’s assets (that are the direct result of the purchase or sale of residential real estate, payouts from social insurance, etc.), are covered by the guarantee in full, i.e. above the amount of EUR 100,000.

Updated: May 14, 2019